Money woes hamper New York's medical marijuana program

ALBANY - New York's fledgling medical marijuana program has faced its share of obstacles: Tepid doctor interest, limited certified patients and a restrictive law that makes expansion difficult.
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ALBANY - New York's fledgling medical marijuana program has faced its share of obstacles: Tepid doctor interest, limited certified patients and a restrictive law that makes expansion difficult.

But the main factor at the center of the state's ongoing struggle to build a sustainable medical marijuana program is this: a lack of sales.

Nearly two years since the launch of New York's program, the state's five medical marijuana companies have struggled to generate revenue, combining for a gross total of merely $16 million before any taxes, expenses or other overhead costs from April 2016 through August 2017, according to state tax-collection data analyzed by the USA Today Network's Albany Bureau.

Revenues have steadily increased in recent months, as have the number of certified patients, giving medical-marijuana boosters hope the program is heading in the right direction after the state has taken steps to expand it.

But the still-limited sales figures have medical-marijuana companies questioning how long the state can feasibly sustain the program, particularly as the Department of Health moves to add five new companies to the mix. The existing ones are struggling to turn a profit.

The trickle-down effect is significant: Patients with debilitating illnesses would suffer should the program falter. And county governments, who had been hoping for an influx of tax revenue, have so far received a pittance.

"I believe this to be a true statement, which is no registered organization has made even a penny in profits since Day One," said Ari Hoffnung, CEO of Vireo Health of New York, which operates a growing facility and four dispensaries, including those in White Plains, Westchester County, and Johnson City, Broome County.

Tax and revenue

New York first launched its medical marijuana program in January 2016, charging a 7 percent excise tax on all sales.

It initially approved five for-profit companies to open a manufacturing facility and four dispensaries each, spread across the state. Unlike states with less-restrictive medical marijuana laws, New York does not allow smokeable forms of the drug.

The state collected $585,000 from the excise tax during its 2016-17 fiscal year, according to the state Department of Taxation and Finance. That means the five companies generated $8.4 million in combined sales from April through March.

But sales have picked up. The five-month period that followed nearly matched that amount, with the state bringing in $574,000 in tax on $8.2 million in sales.

Tax revenue was far lower than the state's initial estimate.

Gov. Andrew Cuomo's Budget Division initially projected $4 million in marijuana tax revenue in 2016-17, but revised that number sharply downward after initial receipts were slow. For the state to get $4 million in taxes, the companies would have needed more than $57 million in sales.

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Various forms of medical marijuana at the Vireo Health of New York dispensary in White Plains(Photo11: Peter Carr/The Journal News)

New York is taking in far less than states with less-restrictive medical marijuana programs.

Colorado charges a 2.9 percent tax on medical marijuana sales. In 2016, the state collected $12.2 million from the tax, meaning total revenues for medical marijuana companies were about $419 million.

The Rocky Mountain state has about 500 licensed medical marijuana stores, compared to New York's 20.

Trouble ahead?

Even with the uptick this year, the data remains troubling for the New York marijuana businesses, whose success depends on developing a broad customer base that purchases their products month after month.

If the average customer pays $200 a month for their products, that means there were a total of about 10,000 active customers in August -- about a third of the 31,116 patients certified to use medical marijuana statewide.

The state Department of Health, which oversees the program, said its focus is on serving the patients, who suffer from debilitating or life-threatening diseases.

The agency added chronic pain to the list of eligible illnesses in March, and the number of certified patients has doubled since.

New York also approved five new medical-marijuana companies to operate in the state, a move that will double the number of dispensaries to 40, but has also drawn a lawsuit from the current companies.

"New York State’s Medical Marijuana Program has always been about patient care, not profitability or tax revenue," Jill Montag, a spokeswoman for the Department of Health, said in a statement.

The lawsuit from the New York Medical Cannabis Industry Association, which represents the five current marijuana companies, claims the state didn't have the legal authority to add new companies, warning that the decision could ultimately sink the program.

All five of the companies have struggled to make money, according to the association's suit.

"The (companies) are still operating at a loss, are utilizing a fraction of their manufacturing capacities, and they have not yet come close to recouping the substantial investments they made into becoming pioneers in the program," the lawsuit claims.

Hoffnung said the tax collection numbers show the market is growing in New York, but "is still extraordinarily small -- in fact, one of the smallest in the country."

The issue is with demand, not supply, he said.

"No business could incur operating losses in perpetuity," he said. "That's not a business, that's a non-profit organization. That's not how this market was structured."

Counties see little

Counties, meanwhile, have seen little revenue come their way.

Forty-five percent of the medical-marijuana tax revenue is distributed to counties that house the state's five growing facilities and 20 dispensaries.

From April 2016 through March 2017, the counties' share worked out to just $263,065, according to the state Comptroller's Office.

That came as a big surprise to Broome County, home to one of Vireo Health's dispensaries.

The Southern Tier county actually took in $1,711, according to budget documents.

Negligible revenue

Current Broome County Executive Jason Garnar said the county this year isn't estimating any revenue from medical-marijuana sales.

"We all know budgets are an estimate and you try to do the best you can," Garnar said, but added, "We can’t do any of that kind of stuff anymore."

Other counties have seen similarly negligible revenue.

Westchester County, which has dispensaries owned by Etain and Vireo, receive $12,000 in 2016. That has picked up in 2017, with $18,000 received over the first half of 2017, according to county spokesman Gerald McKinstry.

And Monroe County, home to a Columbia Care manufacturing facility and dispensary, has received between $70,000 and $80,000 in tax revenue since the medical-marijuana program launched, according to spokesman Jesse Sleezer.

The Monroe figures are boosted by having the manufacturing facility, but the tax revenue still remains a small portion of the county's $1.2 billion budget.

The Hudson Valley county of Ulster, home to an Etain Health dispensary in Kingston, received just $3,800 in medical-marijuana tax revenue in 2016 and about $12,000 through the first three quarters of 2017, according to county finance commissioner Burt Gulnick.

"We kind of knew that going in, because we looked into what the formula was that we would receive, and it was much ado about nothing," Gulnick said. "It doesn't add up to much."